A Basic Financial Planning Checklist

A Basic Financial Planning Checklist

 A realization that has only very slowly occurred to me, over 15 years in the world of financial planning, is that the most common financial planning mistake that I see people make is not so much a particular bad decision, but rather completely ignoring certain parts of financial planning.

In many cases, that shows up in the form of focusing too much on the investing part of the picture, while having some other critical financial planning need that is going unaddressed.

And that’s not terribly surprising. Investing involves thinking about upside — how your assets will grow (and how they could grow, if you make a high-risk bet and get lucky). That can be fun.

In contrast, many critical financial planning tasks involve thinking about downside. (What if you become disabled or die earlier than anticipated?) That’s less fun.

In addition, a lot of critical financial planning tasks look suspiciously like work.

What follows is just a brief checklist of financial planning topics, all of which should probably be addressed before spending much time thinking about exactly what is the correct allocation to international bonds or whether index funds are preferable to ETFs.

Insurance Planning:

Do you have health insurance? (And if it’s open enrollment season, have you checked to see whether there’s a different plan that might be a better fit for your household?)

To continue reading, please go to the original article here:

https://obliviousinvestor.com/financial-planning-priorities/

Getting the Goalpost to Stop Moving

 Getting the Goalpost to Stop Moving

Jun 7, 2021 by Morgan Housel

There aren’t many iron laws of money. But here’s one, and perhaps the most important: If expectations grow faster than income you’ll never be happy with your money. One of the most important financial skills is getting the goalpost to stop moving. It’s also one of the hardest.

First, a little story about the 1950s.

“The present and immediate future seem astonishingly good,” LIFE magazine’s January, 1953 cover story begins.

“The country has just lived through what was economically the greatest year in its history” it wrote. It had done this with “10 straight years of full employment, through new management attitudes which include an increasing realization that the well-paid worker, who does his job under healthy and agreeable conditions, is a valuable worker.”

Wealth came so fast to so many it was jarring. “In the 1930s I worried about how I could eat,” LIFE quotes one taxi driver. “Now I’m worrying about where to park.”

If these quotes don’t surprise you it’s because the 1950s are so often remembered as the golden age of middle-class prosperity. Ask Americans when the country was at its greatest and the 1950s is usually near the top. Compared to today? Different worlds, no comparison. The overwhelming feeling is: It was better then.

George Friedman, a geopolitical forecaster, summarized the nostalgia a few years ago:

In the 1950s and 1960s, the median income allowed you to live with a single earner — normally the husband, with the wife typically working as a homemaker — and roughly three children. It permitted the purchase of modest tract housing, one late model car and an older one. It allowed a driving vacation somewhere and, with care, some savings as well. I know this because my family was lower-middle class, and this is how we lived, and I know many others in my generation who had the same background.

There are two ways to debate a position: Asking whether it’s true and asking whether it’s contextually complete.

This version of the 1950s lifestyle is true in the sense that the median American family indeed had three kids and a dog named Spot and a breadwinning husband who worked at the factory and so on.

But the idea that the typical family was better off then than now – that they were more prosperous and more secure, by nearly any metric – is so easy to debunk.

That doesn’t mean those yearning for the 1950s are necessarily wrong. It just shows that something else changed in the last 70 years that created a gap between what happened and how people feel about what happened. And that something else is not complex: America’s wealth grew but its expectations grew more.

To continue reading, please go to the original article here:

https://www.collaborativefund.com/blog/goalpost/

Save Like A Pessimist, Invest Like An Optimist

Save Like A Pessimist, Invest Like An Optimist

Sep 2, 2020 by Morgan Housel

In 1984 Jane Pauley interviewed 28-year-old Bill Gates. “Some people call you a genius,” Pauley said. “I know that might embarrass you but …”

Gates deadpans. No emotion. No response.

“OK, I guess that doesn’t embarrass you,” Pauley says with an awkward laugh.

Again, zero reaction from Gates.

Of course he was a genius. And he knew it.  Gates dropped out of college at 19 because he thought a computer should be on every desk in every home. You only do that when you have relentless confidence in your abilities. Paul Allen once wrote about the first time he met Bill:

You could tell three things about Bill Gates pretty quickly. He was really smart. He was really competitive; he wanted to show you how smart he was. And he was really, really persistent.

But there was another side of Bill Gates. It was almost paranoia, virtually the opposite of his unshakable confidence.

From the day he started Microsoft he insisted on always having enough cash in the bank to keep the company alive for 12 months with no revenue coming in. In 1995 he was asked by Charlie Rose why he kept so much cash on hand. Things change so fast in technology that next year’s business wasn’t guaranteed, he said, “Including Microsoft’s.” In 2007 he reflected:

I was always worried because people who worked for me were older than me and had kids, and I always thought, ‘What if we don’t get paid, will I be able to meet the payroll?’”

Optimism and pessimism can coexist. If you look hard enough you’ll see them next to each other in virtually every successful company and successful career. They seem like opposites, but they work together to keep everything in balance.

What Gates seems to get is that you can only be an optimist in the long run if you’re pessimistic enough to survive the short run.

The best way for most people to apply that is: Save like a pessimist, invest like an optimist.

Let me try to convince you of each.

To continue reading, please go to the original article here:

https://www.collaborativefund.com/blog/save-like-a-pessimist-invest-like-an-optimist/

The 5 Most Important Money Lessons I Give My Residents

The 5 Most Important Money Lessons I Give My Residents

By Peter Kim, MD   Passive Income MD

A large part of my job is teaching. In fact, every day I teach both residents and fellows. The subject matter is mostly anesthesia-related, but I can’t help throwing in some financial lessons I’ve learned along the way.

Physician Contract Reviews

 We just don’t get any financial education in our normal training, and I feel it’s a great disservice, not only to our future careers but our lives as well. For this reason, unfortunately, it’s up to us to self-educate.

When I’m teaching my residents, I feel that it’s important to impart some of my own hard-earned knowledge, so they can avoid costly financial mistakes and ultimately go through life with less weight on their shoulders. Here is some of the best advice I can give any of them.

1) Read, Read, and Read Some More

As I mentioned earlier, we simply don’t get any this type of education in training or in school, so it’s up to us to seek out and consume the information ourselves. Two books that have shaped the way I think about money and life are Rich Dad, Poor Dad and The Total Money Makeover. As a starting point into setting yourself up the right way financially, you’d be hard-pressed to find two books better than these. Looking for more books? Check out my favorite financial and investing books.

There is also a plethora of good blogs out there with loads of helpful information.

We should always be in a state of learning. After all, how should we expect to be smart with our money if we haven’t dedicated any time to learn about it? The resources are out there, we just have to go out and feed ourselves.

2) Get a Handle on Your Debt

We all know this. Debt is bad… well, debt that doesn’t create more income for you or increase your asset value is bad. At least, we know it intellectually. But we often forget this in practice. I’ve heard many residents say, “I already owe so much in student loan debt, what’s a little more credit card debt?”

To continue reading, please go to the original article here:

https://thephysicianphilosopher.com/the-5-most-important-money-lessons-i-give-my-residents/?utm_source=rss&utm_medium=rss&utm_campaign=the-5-most-important-money-lessons-i-give-my-residents

Brain Meets Money

Brain Meets Money

Richard Quinn 

HOW OFTEN DO you think about money? Hey, you just did. Seriously, we think about money every day and sometimes every hour. Some studies say we ponder financial matters even more often than the old standby: sex.  We’ve been thinking about the stuff for a long time. Money goes back about 3,000 years. Paper currency can be traced to China in 700 BC. They didn’t fool around: Their currency stated that all counterfeiters would be decapitated. I’m guessing counterfeiting was rare.

Today, it costs two cents to manufacture a penny and almost eight cents to make a nickel. Result? Each year, we taxpayers lose about $85.4 million on the production of pennies and $33.5 million on nickels.

Gee, at that rate, those of us on Social Security could receive a $2-a-year raise if they made cheaper money. Who needs pennies anyway? Money is no more than a piece of metal or paper—basically worthless, except you can get stuff for it because the people who sell you stuff can get other stuff with the money you give them.

Does money make us happy? Benjamin Franklin didn’t think so. “Money never made a man happy yet, nor will it. The more a man has, the more he wants. Instead of filling a vacuum, it makes one.”

The evidence suggests Ben was right, but try telling that to addicted lottery players. I recall a TV show depicting the impact of winning the lottery on people. Instead of making the winners happy, it often messes up their lives, mostly because they’re ill-prepared to handle the money and because they thought spending would make them happy.

One winner stands out in my memory. He bought several pieces of used heavy construction equipment just to have. He didn’t know the tax withholding on his winnings wouldn’t cover all of the tax he owed. He eventually lost all of his prize possessions and a great deal more to the IRS.

Another family lived in a trailer and, instead of moving, expanded it, bought each child their own ATV and gave each an allowance of $1,000 a month. The kids were ostracized at school and had to leave.

 “The conviction of the rich that the poor are happier is no more foolish than the conviction of the poor that the rich are,” offered Mark Twain. Indeed, if you Google the subject of happiness and money, you will find assessments from every point of view. But none concludes that money buys permanent happiness, only fleeting pleasure perhaps

To continue reading, please go to the original article here:

https://humbledollar.com/2020/02/brain-meets-money/

Five Reasons to Rent

Five Reasons to Rent

Humble Dollar

HOMEOWNERSHIP offers many advantages, as we detailed in the previous section. But there’s no guarantee you’ll make money, especially if you own a house for just a few years. Thinking of purchasing a home? Here are five caveats—which may prompt you to continue renting.

First, given the risk of declining property prices, you shouldn’t buy unless you can see staying put for at least five years and preferably seven years or longer. While it’s hard to imagine we’ll suffer another decline like that of 2006-12 any time soon, a smaller drop is entirely possible.

Second, homes are horribly expensive to buy and especially sell, which is another reason you need a long time horizon. There’s the mortgage-application fee, home inspection, title insurance and legal fees when you buy—and the 5% or 6% real estate brokerage commission and local transfer taxes when you sell.

Suppose your home’s price rises a few percentage points a year, but you end up selling after just five or six years. Once you figure in all the costs of buying and selling, you may not make money.

Third, owning a home involves greater hassle, with more bills to pay, maintenance to deal with and repairmen to call. If you’re renting, many of these problems fall on the landlord’s shoulders.

To continue reading, please go to the original article here:

https://humbledollar.com/money-guide/four-reasons-to-rent/

Five Reasons to Buy

Five Reasons to Buy

Humble Dollar

DESPITE THE PROPERTY market’s 2006–12 downturn, many Americans remain firmly convinced of the virtues of homeownership. What underpins that faith? Here are five reasons most folks should aim to own a home.

First, with a fixed-rate mortgage, you lock in your housing costs and thereby protect yourself against a booming real estate market that drives up rents and property prices. An adjustable-rate mortgage doesn’t offer the same degree of certainty, though typically there are caps on how much your monthly payment can increase.

Second, as you pay down your mortgage, you come to own a valuable asset outright. Think of a mortgage as forced savings, with a portion of every monthly payment going toward reducing your loan’s principal balance.

Third, once your mortgage is paid off, you eliminate a major expense, making it easier to retire because you can now live “rent-free.”

Fourth, home prices historically have increased slightly faster than consumer prices, thus acting as a hedge against inflation. Inflation also effectively trims the cost of your mortgage, because it allows you to pay off the loan with dollars that are less valuable.

To continue reading, please go to the original article here:

https://humbledollar.com/money-guide/five-reasons-to-buy/

Even The Federal Reserve Doesn’t Believe The Federal Reserve Anymore

Even The Federal Reserve Doesn’t Believe The Federal Reserve Anymore

Notes From The Field By Simon Black
June 15, 2021   Cancun, Mexico

More than twenty years ago when I was a young Army intelligence officer fresh out of the academy, my commander summoned me to his office one afternoon because he had a ‘special mission’ for me.

I was beyond excited.

My assumption was that it would be a clandestine assignment to lead one of our unit’s counterintelligence teams in the Middle East. Or perhaps it would be temporary duty as an aide to the commanding general who would be visiting soon.

It was none of the above.

Instead, my commander looked at me and said, “Lieutenant, I need you to plan our unit’s long-term budget for the next ten years, and I want it on my desk this afternoon.”

Huh?

Aside from the obvious disappointment of being handed such a lame assignment, I was dumbfounded that they would entrust something like budget planning to a 22-year old with zero experience in the matter.

But the task took me all of 15 minutes to complete. I looked at what our unit’s current budget was for that fiscal year… and then I spent a few minutes researching the inflation rate.

According to Yahoo (yes, this was so long ago that people still primarily used Yahoo instead of Google), the projected inflation rate was 2%.

So basically I just added 2% to our spending every year for the next 10 years, and poof, long-term budget complete.

That’s the day I learned how government financing works; quite often the people who come up with these numbers don’t have a clue what they’re doing and base everything on some very simple assumptions about the future.

A few weeks ago, the White House unveiled its own 10 year budget, which forecasts US federal spending into the early 2030s.

Similarly, they make their own assumptions about the future. In fact, they list key assumptions about inflation, interest rates, etc. on page 60 of their budget report.

This is really interesting… because the Federal Reserve-- i.e. the US central bank that is responsible for controlling inflation-- insists that they’ll keep inflation at 2% over the long term.

But apparently the White House doesn’t believe its own central bank… because the 10-year Biden Budget assumes an inflation rate that’s, proportionally, 15% higher than what the Federal Reserve promises.

This lack of confidence is pretty remarkable; think about it-- the US Treasury Secretary, who would have been instrumental in drafting the budget, used to be the Chair of the Federal Reserve.

So even the Fed’s own alumni don’t believe the Fed when they say that they’ll keep inflation at 2%.

And why should anyone believe the Fed? Inflation has been soaring, yet the Fed has been completely dismissive of it, claiming that inflation is ‘transitory’, i.e. it’s a temporary phenomenon that will eventually stop.

We’ve discussed this before-- there is some truth in that statement. But the real issue is far more complicated.

Let’s have a look at what inflation really is--

In simplistic terms, inflation is too much money relative to the amount of stuff in an economy. And ‘stuff’ literally means ANYTHING-- a loaf of bread, a brand new Tesla, services performed by your accountant, and even assets like Bitcoin, stocks in the S&P 500, real estate, etc.

There’s a finite amount of goods and services in any economy. There’s only so much property available, only so many loaves of bread that are baked. And there are only 500 companies in the S&P.

Similarly, there’s also a certain amount of money-- all the combined income and savings of everyone in the economy.

In a market-based economy, consumers and investors make choices about where all that money ends up; they choose to purchase loaves of bread, Teslas, or shares in S&P 500 companies.

And based on the laws of supply and demand, the prices for those goods, services, and assets will rise or fall according to consumer preference.

But then the Federal Reserve steps in… and arbitrarily expands the money supply. And by “expand”, I mean “flooded the economy with a supernova orgy of money.”

This is pretty much what the Fed has done ever since the LAST financial crisis in 2008; back then its balance sheet was about $800 billion. Today it’s $8 trillion-- 10x bigger.

This means that the Fed has stuffed enormous quantities of money into the economy over the past 12+ years… and especially over the last year.

Since COVID started, the Fed has doubled the size of its balance sheet and expanded the money supply more than any year in US history except for 1943. That’s really saying something.

So- let’s go back to our inflation definition: now there are trillions of dollars of new money in the system.

But at the same time, there’s a lot less stuff.

Countless businesses closed, others were forced to shut down, and workers have been paid to stay home.

All of those policies mean less stuff is being produced in the economy.

So-- more money, less stuff means that prices have generally been rising. That’s inflation.

Some of this really is temporary. Eventually most of those surviving businesses will open, and others will replace the ones which failed. So production will start to catch up.

But longer term, there are a lot of other factors to consider--

1) Tax policy. Remember, these guys want to raise taxes in the US, especially on investors and large companies. In fact their proposed corporate tax rate is 28%.

Yet they’ve just announced a proposal with other nations to set a “global minimum tax” of 15%. So they’re essentially creating a huge incentive for US companies to stop producing in America and head overseas for a lower tax rate. It’s genius.

2) Idiotic COVID policies. We’ve talked about this before-- COVID compliance is expensive.

Here’s a great example-- a lot of hotels are keeping a used room vacant for 24 hours after a guest checks out to ensure ‘proper ventilation’ before any new guest can stay in that room.

This means that hotels will never be able to operate at full capacity, which will cost them a ton of money. And ultimately those costs will be paid by consumers in the form of higher room rates. That’s inflation.

3) Incentives to NOT work.

This one is nuts; they give people money to NOT work. And then the government complains that the unemployment rate is too high… so they need to continue giving money to unemployed people!

It’s a never-ending cycle that creates major disincentives to produce, i.e. less stuff in the economy.

It’s even dumber than when the federal government gave money to farmers during the Great Depression to DESTROY their crops.

There are so many more examples and trends, each of which makes it more difficult to produce (i.e. less stuff) at a time when there’s more money flooding the economy. That causes inflation.

So it’s no wonder the White House is skeptical when the Fed claims that inflation will be 2%. There are simply too many forces that will keep inflation higher in the future.

To your freedom, Simon Black, Founder, SovereignMan.com

https://www.sovereignman.com/trends/even-the-federal-reserve-doesnt-believe-the-federal-reserve-anymore-32665/

Taking Sides on Financial Issues

Taking Sides on Financial Issues

Adam M. Grossman  |  June 6, 2021

WHEN IT COMES to financial questions, there are two common reasons people disagree. Sometimes, they disagree about the facts—whether, say, interest rates are headed higher. But sometimes, people disagree for another reason: They see the world through different lenses.

Last week, I mentioned that Ray Dalio, a prominent hedge fund manager, had recently said that bonds “have become stupid.” I disagreed, but not because of the facts. There’s no disputing the impact of today’s low rates. But I think the wisdom of owning bonds depends on what you’re trying to accomplish. If you’re a hedge fund manager like Dalio, your objectives will be different from those of an individual investor. For a hedge fund, maybe bonds are stupid. But for an individual investor, they might make a ton of sense. It’s a matter of perspective.

Below are five other issues that I also see as matters of perspective.

1. Asset allocation. Investment advisor and author William Bernstein is often quoted as saying, “When you’ve won the game, stop playing.” In other words, if you’ve already accumulated enough savings to meet your needs—or if you’re on track to—then you should dial back your portfolio’s risk. There’s no sense continuing to take risk when you don’t need to. Warren Buffett has expressed the same sentiment: “It’s insane to risk what you have and need in order to obtain what you don’t need.”

Suppose you’ve saved $5 million for retirement and only need $100,000 on top of Social Security to meet your expenses. With these numbers, implying a modest 2% withdrawal rate, you’d be in great shape. If you took Bernstein’s approach, you would manage your portfolio conservatively to avoid jeopardizing that strong position. But some might reach precisely the opposite conclusion, reasoning that with $5 million in the bank and modest needs, you could afford to take more risk.

What’s the right answer? My view is that there isn’t one. It will depend on your goals and what’s most important to you. Are stability and security most important, or are you looking to grow your portfolio as much as possible? Where you come out on this question is an entirely personal decision.

2. Alternative investments. David Swensen was the longtime manager of Yale University’s endowment before he passed away recently. Swensen was a pioneer in developing complex investment strategies. But in a book he wrote for individual investors, Swensen advocated the exact opposite approach. His advice: Buy simple, low-cost index funds and steer clear of complexity.

To continue reading, please go to the original article here:

https://humbledollar.com/2021/06/taking-sides/

What You Need To Know Before You Invest In Anything

What You Need To Know Before You Invest In Anything

Thomas Kopelman / June 1, 2021

As a financial advisor, I get asked almost daily what I am investing in.

It mostly sounds like this “are you invested in Bitcoin? Ethereum, Apple, Tesla, AMC, etc.” The list could go on forever.   I always have a hard time answering this question because what I invest in doesn’t really matter. Just because I invest in certain things does not mean you should and vise versa. The real question is “why do I invest in those things?” The why is so much more important than the what.

And for me, I have a deep why for my investing strategy.

I believe in low cost, diversified investing for most of my portfolio. About 80% of my current portfolio is in low cost index funds that have the exposure I want (the same as our RLS Wealth clients). Some to large cap, some to mid cap, some to small cap, some to international, some to value, and some to growth.

My main focus here is to get what the market offers. To hold on long term and to not touch this money till I need it in the distant future — and to keep the fees as low as possible, but also to keep the gains sheltered inside as much as possible by using ETFs.

Then, with the last 20% I take more risk. I invest in some cryptocurrencies I really believe in as well as some individual stocks. The key here is that I truly believe in them. I did my research. I found what I think will make an impact in the future — and with these investments, I still have a long term view. This belief system is so crucial when you invest, because without it, how do you continue to stick with it when times get tough?

These last few weeks, so many people I know sold their positions in Bitcoin, Ethereum, and other cryptocurrencies, and if that is you, it’s probably because you never believed in the investment in the first place. You probably just invested because others were doing it and you were hoping to make lots of money off of it. I am here to tell you that investing that way rarely works.

Every time things get tough, you are going to sit there and fight yourself on whether you should sell or not simply because you have no true belief around it. This is why it is so important to invest in what you truly believe in because that long term belief enables you to hold on through short term downturns. Sure, it still won’t be easy, but it will be possible when you truly believe in the investment.

I also want to note that chasing investment returns as a millennial is not where your energy is best spent. Your energy is best spent continually investing, increasing your income, increasing your investment percentage, investing in the right accounts based on taxes, etc.

Here are some pieces of investment advice to help you out:

To continue reading, please go to the original article here:

https://thomaskopelman.com/2021/06/what-you-need-to-know-before-you-invest-in-anything/

My Uncle Died Without a Will – And It Was a Nightmare

My Uncle Died Without a Will – And It Was a Nightmare

Written by Hannah Logan   Publish date: June 4, 2021

What happens when a family member dies and doesn't leave a will? It's not pleasant, as one woman recounts. It's a frustrating exercise that underscores why everyone should have a legal will.

In April of 2017, my family got a call we never expected.

My father’s youngest brother had died suddenly in his home. My uncle Peter was a single man without children, so it fell upon my family to take care of his estate. While this is never a pleasant task for any family, our experience was made several times more difficult and stressful due to the fact that we were unable to find his legal will.

He was a former member of the Canadian Navy, based in Halifax. Upon receiving the news my parents flew out to Nova Scotia from our family home in Ontario to take care of everything.

At least, that was the plan. What happened was a frantic scavenger hunt that led us to dead-ends and an agonizing process with the government. Did I mention that we had to deal with this gong show while trying to process our grief of losing a loved one?

Since he had served in the navy, we all assumed Peter had a will. Despite hours of searching, there wasn’t one to be found. Instead of spending the time in Halifax to clear out his apartment and to distribute/sell his belongings, my parents were trying to find Peter’s will. After a week of searching, they gave up, put Peter’s stuff in storage, and flew home. They were still determined to look for a will from afar.

Over the next two months, we did everything we could to find his will, if one even existed at all. We contacted the Canadian military in hopes they might still have one on file. After all, he had only been out of the military for a few years before his death. Even if it wasn’t a recent will, it would have given us some understanding of his last wishes.

No luck. We reached out to every bank and lawyer office we could find in the Halifax area. Again, we came up empty-handed. So we rifled through boxes and boxes of my uncle’s papers that my parents had brought home. Perhaps somewhere in that pile, we’d find a will or clue about whether he had created one and with whom.

But it was all a lost cause. Grief-stricken and frustrated, we had to figure out our next steps of dealing with what the law calls dying “intestate”—meaning that a loved one hasn’t left any instructions as to how they’d like their property to be divided and distributed. It also meant his last wishes for burial were a guessing game.

Unfortunately, this is more common than you would think. Based on a poll conducted by the Angus Reid Institute in 2018, 51% of Canadians don’t have a will. One of the main reasons for this, according to the poll, is that people think they are too young to need one. The study showed that Canadians over the age of 55 are four times as likely to have a will as those aged 18-34, and twice as likely to have a will as those aged 35-54.

To continue reading, please go to the original article here:

https://youngandthrifty.ca/what-happens-if-you-die-without-a-will-in-canada/

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